D2C as a New Revenue Stream in B2B eCommerce

Unlocking a new revenue stream in B2B: selling directly to consumers

As a millennial, I still remember the feeling of walking through the farming stalls early in the morning, chatting with chubby milkmen, and haggling over the price of chicken. Farmers used to come to the old part of town, set up their makeshift kiosks, spread the tablecloths, and lay out their produce in elaborate heaps for display. Instead of a market, there is now a shopping mall.

Before the advent of grocery stores and malls, farmers used to have a small pool of loyal customers where the relationships were close and healthy. The geographical barriers and a small number of competitors enabled farmers to thrive locally.

What I have just described is a classical D2C (direct-to-consumer) model, which has been significantly disrupted by the development of infrastructure, the emergence of different modes of transport, globalization, and the Internet. However, interest in selling direct to consumers has been steadily increasing for the past few years. The recent pandemic has even nudged companies historically reliant on distribution partners to launch websites, deepen the relationship with the end consumer, and sell select products. However, consumers are now deeply accustomed to the way they have been buying for the last decade. While the seller benefits are clear cut (customer data, less reliance on third parties), the buyer benefits are less obvious. Moreover, the growth of direct channels won’t last forever, and we expect market satiation in the foreseeable future. With that said, the time to explore the opportunity of going directly to consumers is now – find the balance between channels, products, prices, shopping experiences, and educate your consumers of the benefits they gain by buying directly.

What is D2C

As the name suggests, direct-to-consumer (DTC or D2C) refers to selling products or services directly to end customers (who don’t necessarily have to be physical entities but companies) bypassing any middle-men, such as wholesalers or retailers.

Benefits & drawbacks of going D2C

One of the principal advantages of a D2C approach is the customer-centricity of the model. This provides a better relationship between business and end consumer and results in stronger brand loyalty. Online direct-to-consumer businesses enjoy lower costs than their physical counterparts, as they have reduced the number of different business components such as employees, renting or building a brick-and-mortar store, supporting relationships with third party vendors and partners, minimizing administrative resources, and recording of business transactions between partners. Moreover, online D2C businesses are no longer locally confined but can reach wider international audiences and take advantage of an almost limitless marketplace. D2C enables smaller companies to grow faster and compete with larger businesses because of their agility, availability of products, faster shipments, quality of service.

However, by selling directly to the consumer, businesses face risks that have been previously tackled by wholesalers or retailers, such as labeling, shipping, returns, or cybersecurity. Handling customer data is a particularly sensitive issue as it entails using, storing, and disposing of data following the laws of a specific jurisdiction. Also, in switching from a particular model, where instead of a few distributors, businesses choose to deliver their products to many individual customers, companies increase the complexity of their distribution chain, which in itself bears pertinent risks.

Going D2C requires not only sophisticated infrastructure but market expertise, frameworks for shipping orders and owning of consumer data. Investing in the lacking competencies may draw resources away from a company’s core products, which in turn can result in customer erosion or damage a relationship with existing partners.

The harbingers of success in D2C are often an exclusive offering or a differentiated value proposition, product bundling, auto-reorders, and additional services.

Let’s summarise the benefits and drawbacks of a D2C business model in the following table:

Benefits of D2C
Drawbacks of D2C
– No middlemen imply higher profit margins and more control over profits – A shift in responsibilities (your business is in charge of everything from production to distribution)
– Access to granular socio-economic and geographical customer data, which can be employed for targeted personalization & contextualization – Responsibility for consumer data Increased liability over risks previously shared with third parties
– More room for creativity and testing of concepts – Substantial marketing effort because of increased competition
– Increased brand loyalty and customer engagement – Complex supply chain

What ecommerce experts say?

Our experience has shown that the D2C model can be seamlessly replicated in the B2B context. The consumer can be anything in the equation from a retailer to an individual, as long as they are the end customers. We specifically want to highlight two projects undertaken by Virto Commerce and illustrate how the D2C concept can be successfully implemented when choosing the right B2B ecommerce platform.

Bosch Thermotechnik (or Bosch Thermotechnology) is a Bosch subsidiary that offers indoor climate solutions, water heating, and decentralized energy management. Bosh Termotechnik’s customers are construction companies and installation crews. To gain more insight into their end consumers, Bosch decided to set up a loyalty portal. Customers can register the Bosch equipment they purchased and receive loyalty points in return, which they can later use on the portal to buy other products and equipment from Bosch partners. Bosch customers can’t anonymously register to receive the points; they are asked to provide sufficient information for the company’s representative to get in contact with them and ask relevant questions regarding their purchase. This way, Bosch not only gains information about their end consumers but also insights into customer satisfaction, including feedback, comments, and wishes. The company can now also influence its customers by offering them new equipment or an older but better one (with more relevant features and capabilities) that customers have not yet tried or been oblivious of its existence.

Learn how Bosch Thermotechnik gains valuable insights from its customer loyalty portal

Virto Commerce has also recently completed a large project for a beer company whose end consumers are retailers. Although retailers sell beer to individual customers, the beer company still perceives retailers as their end consumers. If they don’t buy beer, individual customers will end up buying something else that’s already in a retailer’s store. To have more information about their end customers, the beer company developed (with Virto Commerce) a B2B ecommerce portal where the beer company’s distributors can sell beer directly to retailers. Distributors now communicate with the retailers, organize the logistics and check the retailers’ finances (outstanding debit/credit) with the end customer from the beer company’s portal. The beer company now has control over the retailers’ data and sees who buys what and how much. The company can also influence the retailers by providing them with recommendations on hot deals, promotions, new types of beer. They can now forecast demand by utilizing all the collected data and receive complaints or feedback on the work of their distributors.

As you can see from the above examples, businesses have moved beyond the ‘Dollar Shave Club’ model and chose more sophisticated frameworks, where the path to the end customer doesn’t necessarily involve a new product but the use of existing resources or the extension of the current B2B ecommerce platform.

This article is a part of a series dedicated to exploring new revenue models and streams in B2B ecommerce. Stay tuned as we explore more revenue opportunities in upcoming articles, including entering new markets, integrating with third party marketplaces, creating B2B verticals, and acquiring digital competitors.

Book a quick demo

Marina Vorontsova
Technical author and eCommerce advocate